Amazon's AWS Growth Slows, but AI Investments Promise Bigger Future

AWS cloud growth slows, but all eyes are on the tariff-shaped elephant in the room anyway

Amazon turned in total revenue of $155.7 billion for the first quarter ended 31 March, but AWS revenue grew at its slowest pace in five quarters. The cloud arm reported a 16.9% increase year-on-year in quarterly revenue, to $29.27 billion, but that missed Wall Street expectations and was lower than growth reported by Google Cloud and Microsoft - 28.1% and 20% respectively. AWS sits at a $117 billion annualized revenue run rate, said CEO Andy Jassy, with new AWS agreements during the quarter signed with Adobe, Uber, Nasdaq, Ericsson, Fujitsu, Cargill, Mitsubishi Electric Corporation, General Dynamics Information Technology, GE Vernova, Booz Allen Hamilton, NextEra Energy, Publicis Sapient, Elastic, Netsmart, and many others. He argued: It's useful to remember that more than 85% of the global IT spend is still on premises, so not in the cloud yet. It seems pretty straightforward to me that this equation will flip in the next 10 to 20 years. Before this generation of AI, we thought AWS had the chance to ultimately be a multi-$100 billion revenue run rate business; we now think it could be even larger. If you believe your mission is to make customers' lives easier and better every day and you believe that every customer experience will be re-invented with AI, you're going to invest very aggressively in AI and that's what we're doing. Our AI business has a multi-billion dollar annual revenue run rate, continues to grow triple-digit year-over-year percentages, and is still in its very early days. While there is good reason for the high optimism about AI, I conclude my AWS comments with the reminder that there's still so much on-premises infrastructure yet to be moved to the cloud. Infrastructure modernization is much less actually to talk about the AI. The fundamental to any company's technology and invention capabilities to develop their productivity is speed and cost structure. If a company is to realize the full potential of AI, they are going to need their infrastructure and data in the cloud. OK, that's all fair enough - but the growth rate has slowed, has it not? Jassy responds: We've historically said that revenue can be lumpy, we've been saying this well before what's happened with AI over the last couple of years. And the reason for that is the sales cycle, particularly for enterprises. It's true for start-ups. What you really want is you want to have the type of capabilities where start-ups want to primarily choose to run on top of your platform. And that's true. If you look in the start-up space, the vast majority of successful start-ups over the last 10 to 15 years have run on top of AWS. And it's unpredictable when those start-ups are going to find product market fit and grow substantially. And it's hard for them to predict and even harder for us to predict. And the same thing goes on the enterprise side, but in a different way. The sales cycle on the enterprise side is that you spend time trying to convince people that they should move from on-premises to the cloud, and then that you have the right solution for them. And then, you pick a set of projects that you get experience on. And sometimes they use systems integrators, sometimes they use our own professional services, sometimes they're doing it themselves. Then there's a next tranche migrations. Those migrations just take time. Some companies get through them really quickly and some companies take longer to get through them. And what happens a lot of times too, is that they get excited and enthusiastic about the cost advantages and the speed of innovation advantages they get moving to the cloud, and what was supposed to be a smaller next tranche turns into a much larger next tranche. All of that has been true for a long time. It's very hard for us to predict because it really is contingent on what enterprises, how they want to sequence it and resource it. Then you throw in AI, which has its own very fast growth cycle, particularly in certain types of use cases. And those change. If there is a good quarter to announce slower cloud growth, it's now, but not for the best of reasons. The elephant in the room is the Trump 2.0 tariff wars and how that will impact Amazon. Earlier this week the firm found itself denounced by the White House for daring to float the idea of letting customers see the increase in prices caused by the tariffs on goods from abroad. Some would call that transparency; the Trump administration saw it as a declaration of war. One Presidential phone call to Amazon founder Jeff Bezos and a spectacular reverse ferret had taken place and the party line became that one part of Amazon's business had come up with the plan, but it was never signed off and wasn't going to happen. Capitulation complete, it was left to Jassy to provide commentary on what the future holds - which is basically that he doesn't know: Obviously none of us knows exactly where tariffs will settle or when. We haven't seen any attenuation of demand yet. To some extent, we've seen some heightened buying in certain categories that may indicate stocking up in advance of any potential tariff impact. We also have not seen the average selling price of retail items appreciably go up yet. Some of this reflects some forward buying we did in our first-party selling and some of that reflects some advanced inbounding our third-party sellers have done, but a fair amount of this is that most sellers just haven't changed pricing yet. Again, this could change depending on where tariffs settle. Amazon is not uniquely susceptible to tariffs. As it relates to China, retailers who aren't buying directly from China are typically buying from companies who themselves are buying from China, marking these items up, rebranding and selling to US consumers. These retailers are buying the product at a higher price than Chinese sellers selling directly to US consumers in our marketplace. So, the total tariff will be higher for these retailers than for China Direct Sellers. It's also sometimes easy to forget what Amazon sells. We're not mostly selling high average selling price items, but we certainly sell a bunch. Jassy also trotted out a Trumpian narrative that exporters to the US will carry the cost of the tariffs and not pass them on to consumers: Another thing that people forget is that when you've got 2 million-plus sellers, they're not all going to take the same strategy if there ends up being higher tariffs. I mean, there are going to be plenty of sellers that decide to pass on those higher costs to end consumers, but we have a lot of sellers in lots of different countries, and not all of them are going to pursue the same tack. And so, I think when you've got larger diversity like we have, we have a better chance of some of those sellers deciding that they're going to capture share, and they're not going to pass on all or any of those tariffs to customers. I think customers are going to have a better chance of finding variety on selection and on lower prices when they come here. The last thing I would say is that we have been in a number of our businesses, but just I'd say over the last 6 years or so, we have been diversifying where we produce things over a long period of time. We had, I would say, a meaningfully higher concentration of where we produced components for AWS or devices in China than we have now, where we've diversified meaningfully over that time. And we just thought that was wise to do so. Think about 17% year-over-year growth on a $117 billion revenue run rate - it's still pretty significant growth. That's a more convincing sounding thesis than the one about consumers not noticing the price impact of tariffs because the exporters will take the pain on themselves! I'm not sure Jassy managed to pull that one off and that's not good. As he noted:

Amazon CEO: AI Driving AWS To Multibillion-Dollar Growth Despite Supply Constraints

'It's useful to remember that more than 85 percent of the global IT spend is still on premises, so not in the cloud yet. It seems pretty straightforward to me that this equation will flip in the next 10 to 20 years. Before this generation of AI, we thought AWS has a chance to ultimately be a multi-100-billion-dollar-revenue run rate business. We now think it could be even larger,' says Amazon President and CEO Andy Jassy. Amazon Web Services, already a multibillion-dollar business, is set to grow quickly as business customers' need for AI-based services continues to spike and the company continues its AI investment streak, Amazon CEO Andy Jassy Thursday told financial analysts. Jassy, in his prepared remarks during the company's first fiscal quarter 2025 earnings call, said that AWS revenue grew 17 percent year-over-year, and now stands at an annualized run rate of $117 billion as AWS continues to help organizations of all sizes accelerate their move to the cloud, modernize their infrastructure, reduce costs, and speed up innovation. And, he said, the potential for growth in AWS' business is huge. [Related: AWS Optimistic About Growth Despite Supply Chain, Power Constraints] "It's useful to remember that more than 85 percent of the global IT spend is still on premises, so not in the cloud yet," he said. "It seems pretty straightforward to me that this equation will flip in the next 10 to 20 years. Before this generation of AI, we thought AWS has a chance to ultimately be a multi-100-billion-dollar-revenue run rate business. We now think it could be even larger." That is leading to aggressive investment in AI, Jassy said. "If you believe your mission is to make customers' lives easier and better every day, you believe that every customer experience will be reinvented with AI," he said. "You're going to invest very aggressively in AI. And that's what we're doing. You can see that in the 1,000-plus AI applications we're building across Amazon. You can see that with our next generation of Alexa named Alexa+. You can see that in how we're using AI in our fulfillment network, robotics, shopping, Prime Video, and advertising experiences. And you can see that in the building blocks AWS is constructing for external and internal builders to build their own AI solutions. We're not dabbling here. We're very intentionally giving builders the broadest possible capabilities in every level of the AI stack, cost effectively, to use AI expansively across their businesses." At the bottom layer for those building models is Amazon's new custom Trainium2 AI chip, which is seeing significant appeal and demand, Jassy said. "While we offer customers the ability to do AI with multiple chip providers, and will for as long as I can foresee, customers doing AI at any significant scale realize that it can get expensive quickly," he said. "So the 30 [percent] to 40 percent better price performance that Trainium2 offers versus other GPU-based instances is compelling. For AI to be as successful as we believe it can be, the price of inference needs to come down significantly. We consider this part of our mission and responsibility to help make it so." At the middle layer, AWS is offering Amazon Bedrock to give customers a managed service for building GenAI applications, Jassy said. "Amazon bedrock is our fully managed service, and offers a choice of high performing foundation models with the most compelling set of features that make it easy to build high-quality generative AI applications," he said. "We continue to iterate quickly at Bedrock, adding Anthropic's Claude 3.7 Sonnet hybrid reasoning model, their most intelligent model state, and Meta's Llama 4 family of models. We were also the first cloud service provider to make DeepSeek R1 and Mistral AI's Pixtral Large generally available as a fully managed model." Amazon Wednesday also introduced the latest premier version of its Amazon Nova state-of-the-art foundation model with Bedrock, Jassy said. "They deliver frontier intelligence and industry leading price performance," he said. "And we have thousands of customers already using them. ... A few weeks ago, we released Amazon Nova Sonic, the new speech-to-speech foundation model that enables developers to build voice-based AI applications that are highly accurate, expressive, and human-like. Nova Sonic has lower word error rates and higher win rates over other comparable models for speech interactions." Amazon is also heavily investing in agentic AI, and going beyond the typical question-answer use, Jassy said. "Our intention is for agents to perform wide-ranging, complex, multi-step tasks like organizing a trip or setting the lighting, temperature, and music ambience in your house for dinner guests, or handling complex IT tasks to increase business productivity. There haven't been action-oriented agents like this until Alexa+. But the technology to build these agents is still quite primitive and inaccurate, and requires constant human supervision." Amazon just released a research preview of Amazon Nova Act, a new AI model trained to perform actions within a web browser, Jassy said. "It enables developers to break down complex workflows into reliable automic commands like 'search' or 'checkout' or answer questions about the screen. It also enables them to add more detailed instructions to these commands where needed, like, 'don't accept the insurance upsell.' Nova Act aims to move the current state of the art accuracy of multi-step agentic actions from 30 [percent] to 60 percent to 90-plus percent, with the right set of building blocks to build these action-oriented agents. At the top of the AI stack is the Amazon Q GenAI-powered assistant for accelerating software development leveraging a customer's own data, a fast new agent coding experience within the command line interface to execute complex workflows autonomously, and made generally available GitLab Duo with Amazon Q to let AI agents assist with multi-step tasks, Jassy said. "Our AI business has a multi-billion-dollar annual revenue run rate continues to grow triple digit year over year percentages," he said. "And it's still in its very early days. While there is good reason for the high optimism about AI, I conclude my AWS comments with a reminder that there is still so much on-premises infrastructure yet to be moved to the cloud. Infrastructure modernization is much less sexy to talk about than AI, but fundamental to any company's technology and invention capabilities [and] developer productivity, speed, and cost structure. And for companies to realize the full potential of AI, they're going to need their infrastructure and data in the cloud." When asked by an analyst during the question-and-answer period about supply constraints related to chips for AI, Jassy said that AWS' growing multibillion-dollar business means it adds capacity and starts consuming it as soon as it can get new chips. "I think we could be helping more customers drive more revenue for the business if we had more capacity," he said. "We have a lot more Tranium2 instances and the next-generation of Nvidia instances landing in the coming months. There are other parts of the supply chain that are a little bit jammed up as well, motherboards and some other componentry, and some of that just because there is so much demand right now. But I do believe that the supply chain issues, the capacity issues, will continue to get better as the year proceeds." Jassy, in his prepared remarks, also said that the Trump administration tariffs have had little impact on demand by consumers of Amazon's retail sales. "To some extent, we've seen some heightened buying in certain categories that may indicate stocking up in advance of any potential tariff impact," he said. "We also have not seen the average selling price of retail items appreciably go up yet. Some of this reflects some forward buying we did in our first-party selling, but some of that reflects some advanced inbounding our third-party sellers have done. But a fair amount of this is that most sellers just haven't changed pricing yet." However, he said, this could change depending on where tariffs settle. "Amazon is not uniquely susceptible to tariffs as it relates to China," he said. "Retailers who aren't buying directly from China are typically buying from companies who themselves are buying from China, marking these items up, rebranding, and selling to U.S. consumers. These retailers are buying the product a higher price than Chinese sellers selling directly U.S. consumers in our marketplace, so the total tariff will be higher for these retailers and for China direct sellers." Amazon By The Numbers For its first fiscal quarter 2025, which ended March 31, Amazon reported total revenue of $155.7 billion, up 9 percent over the $145.3 billion the company reported for its first fiscal quarter 2024. This included AWS sales of $29.3 billion, up 17 percent; North America sales of $92.9 billion, up 8 percent; and international sales of $33.5 billion, up 8 percent. Total revenue beat analyst expectations by $580 million, according to Seeking Alpha. Amazon also reported total GAAP net income of $17.1 billion or $1.59 per share, up from last year's $10.4 billion or 98 cents per share. The company also reported operating income of $18.4 billion, up from last year's $15.3 billion. Looking ahead, Amazon said it expects second fiscal quarter 2025 sales to be between $159.0 billion and $164 billion, or to grow between 7 percent and 11 percent over that of second fiscal quarter 2024. The company also expects operating income to be between $13 billion and $17.5 billion, compared with last year's $14.7 billion.